Herald shareholders reject US activist Saba's proposals

Saba Capital has lost its attempt to oust the board at Herald (HRI), offering some hope to the other six trusts set for a showdown with the activist early next month.

Some 65.1 per cent of the roughly 26.4mn votes cast by shareholders at the trust's general meeting went against Saba's resolutions. Herald noted that once Saba's own substantial votes were excluded, just 0.15 per cent of votes cast were in favour of the activist's proposals, describing this as a "damning indictment of Saba's proposals". Some 80 per cent of the share capital was voted.

While the outcome of the Herald vote may well provide some hope for its its peers, it was already viewed in some quarters as the most likely trust to survive against Saba. The latter has acknowledged that Herald's returns under investment manager Katie Potts, have been very strong over a three-decade stint, with Saba founder Boaz Weinstein telling a recent webinar that investors appeared to have "special love" for Potts.

He suggested that Saba's support for a full cash exit at 99 per cent of net asset value (NAV) represented more of an incentive than the other trusts might receive.

Responding to the vote, Weinstein said "our campaign has already enhanced value for shareholders and incited positive change at HRI – and elsewhere in the UK market", pointing to the closing of discounts seen since Saba took its stakes. He said the activist would continue to "pursue the changes that we believe are necessary to improve the trust".

Winterflood has also estimated that retail shareholders, who have traditionally been unlikely to vote, made up just 20 per cent of Herald's base, a much lower figure than for some of the other trusts. At the other end of the scale, it said DIY investors may account for 45 per cent of Henderson Opportunities (HOT). Saba needs just 50 per cent of the votes cast to back its proposals to win in each of the six remaining meetings.

Saba has argued the seven trusts – Herald, HOT, CQS Natural Resources Growth & Income (CYN), the European Smaller Companies Trust (ESCT) and Baillie Gifford's Edinburgh Worldwide (EWI), Baillie Gifford US Growth (USA) and Keystone Positive Change (KPC) have underperformed and need overhauling, with the episode descending into tit for tat insults between the different sides.

BlackRock's deal and the next Saba targets

Much attention has been dedicated to the other trusts Saba might target in future. A Peel Hunt note published on 13 January identified 24 trusts Saba has stakes in. Beyond the seven currently fighting Saba, the list includes Middlefield Canadian Income (MCT), River UK Micro Cap (RMMC), JPMorgan European Discovery (JEDT), Montanaro UK Smaller Companies (MTU) and Schroder UK Mid Cap (SCP).

That list also pointed to a 10 per cent Saba stake in BlackRock Smaller Companies (BRSC). However that fund, alongside BlackRock World Mining (BRWM), BlackRock Energy and Resources Income (BERI) and BlackRock American Income (BRAI), has been spared for now.

Earlier this week, the four trusts announced that Saba had "given a number of undertakings", promising each not to requisition a general meeting, seek to change or influence the board, vote against it or short sell the trust's shares before 2027.

The boards of all four trusts said they had given "no monetary consideration" to Saba in return for such safeguards, though they did say they were "committed at all times to exercising the best standards of corporate governance, promoting the success of the company and putting first the interests of shareholders as a whole". The boards of BRWM, BERI or BRAI understand that Saba does not have any stake in those trusts.

Analysts at Numis believe that all the UK-listed BlackRock trusts were offered such an agreement. "We believe the nature of the existing shareholder base is likely key to whether boards accepted and the degree to which they are under threat from Saba," they said in a note.

"Most of the trusts entering into agreements have largely retail-dominated shareholder registers, which struggle with low voter turnout." Numis also noted that value-oriented institutional investors already have a big presence in BlackRock Frontiers (BRFI) and BlackRock Latin American (BRLA) which might put Saba off, while BlackRock Income & Growth (BRIG) has a family stake, making it harder for Saba to exert an influence.

BRLA and BRIG might also be too small for Saba to be interested, while BRFI and BlackRock Greater Europe (BRGE) have certain discount control mechanisms in place. Numis said it was "interesting" to see no agreement with BlackRock Throgmorton (THRG), in which Saba does have a position even if possibly a small one. 

The news comes at the same time as Saba has settled a battle with two US-listed BlackRock trusts, BlackRock Innovation and Growth (US:BIGZ) and BlackRock Health Sciences Term (US:BMEZ). Those trusts have agreed to carry out major tender offers, with Saba holding off on activist measures until 2027 in return.